Personal Distribution - Income Distribution

In answer to the question, "Who are the American poor?" we can say that in 1950 they consisted of: (1) minority groups to whom many of the better paying jobs are closed by reason of social prejudice, (2) broken families in which the wife has had to become the breadwinner, (3) the families struck by chronic illnesses and permanent disabilities, (4) women who never marry, and (5) subsistence farmers. In many cases poor families fit into a number of these categories, as a Negro sharecropper in the South would.

Where Do Those in the Upper-Income Groups Get Their Income?

Those in the upper-income groups, it is sometimes argued, are primarily "coupon clippers" depending on income from investments to maintain their preferred position. It is true that incomes from property are less equally distributed than are incomes from wages and salaries. But the bulk of those in the upper-income groups depend on wages and salaries and self-employment income and not on income from investments for the major part of their income. In 1950 about 56 per cent of the spending units receiving $7,500 or more (and hence in the upper 6 per cent of the income distribution) received no income from interest, dividends, trust funds, and royalties. About 84 per cent received less than $1,000 from these sources. In the same year 73 per cent of those in the $7,500-or-more income class received no income from rent and 90 per cent received less than $1,000 from this source. While it is true that the rich typically receive more interest, dividends, and rent than the poor, it is also true that the poor receive more pensions and allowances than the rich. In large part, then, the inequalities in the distribution of incomes are due to inequalities in the distribution of wages, salaries, and self-employment income. And this is what we should expect, since about four-fifths of the personal income consists of wages, salaries, and self-employment income.

Such information as we have on the distribution of individual wealth also supports these findings. In early 1950 about 40 per cent of all spending units had a net worth—assets owned less debts owed—of $5,000 or more. About a quarter of those receiving less than $1,000 per year reported a net worth of $5,000 or more, thus indicating that they had once been in a higher income group. At the same time about a fifth of those receiving $5,000 or more per year had a net worth of less than $5,000, thus indicating that they were either disinclined to save or had not been in the upper-income classes long enough to accumulate substantial holdings of assets. Even though some of those in the lower-income classes had

sizable holdings of assets and some of those in the upper-income classes had very limited holdings of assets, the distribution of assets was more unequal than the distribution of incomes, thus reinforcing the finding that income from the sale of personal services is a much more important source of income than income from the sale of property services.

Are the Poor Getting Poorer and the Rich Richer?

Is there any evidence that the poor are getting poorer and the rich richer, as is so often alleged? The answer, based on the work of Professor Simon Kuznets, is that the reverse is true. The poor and the middle-income groups, taken together, are getting richer and the rich are getting poorer, measured in annual income. The top 1 per cent of the income recipients received 16 per cent of the total income before taxes in 1913, 14 per cent in 1920, 17 per cent in 1929, 13 per cent in 1939, and 9 per cent in 1948.

Professor Geoffrey Moore in commenting on the Kuznets findings writes: Taking the period as a whole, the average per capita income for the upper groups rose from $5,700 in 1913 to $12,500 in 1948, a gain of $6,800; the average for the lower 99 per cent rose from about $300 to $1,300, a gain of only $1,000. Nevertheless, relatively the gain was much larger for the lower group; that is, the mass of the population. Their per capita income in 1948 was more than four times what it was in 1913, whereas the income of the upper group had little more than doubled. Moreover, a doubling of dollar income in this period does not appear to have been enough even to maintain real income; the BLS consumers' price in 1948 was two and a half times its 1913 level. In real terms, if this index is representative, the "poor" grew richer and the "rich" poorer. Certainly there was a shift towards a smaller relative difference: the individuals in the upper 1 per cent had an average per capita income nearly twenty times as large as the average in the lower 99 per cent in 1913 and only ten times as large in 1948.